Contract refers to an agreement between two parties or more persons to create and define liability. If the contract is broken or not done as per the agreement, treatment is provided by law. Similarly, contract is an agreement between two or more parties to do or not to do something that can be implemented according to the law.
Contract out is a tool of New Public Management (NPM). It is an important tool to reduce government expenditure and build a smarter government. Service delivery is on the rise, as the government's financial position is not good, the market is faster and simpler than the bureaucracy and it is the most attractive way to provide services and goods to the people.
The main function of the government is to provide services to the people, not to hire unwanted employees and the contract system has become better as the market or private sector is better and faster than the government. Nepal has also been adopting contracting out system under the cost reduction system. The process is simple and easy. It has become very attractive in recent times as it gives priority to the outside rather than within the organization.
Scope of Contracting Out
- Tax and accounting system
- Supply and purchase
- Computer programming
- Training administration
- Customer service
- Transportation of goods and services
- Salary, facilities and compensation plan
- Salary report
- Internal security, gardener, courier, sanitation, maintenance etc.
Benefits of Contract Out
- Helps to reduce monopolistic power of the government.
- Cost saving and gain working efficiency.
- New technology can be introduced and learnt. The client also introduces new technology.
- It makes easier to sell cheaply due to cash flow.
Challenges of Contracting Out
- Quality cannot be maintained due to poor quality control. There may be compromise in quality.
- Long process.
- Can remove the strategic direction of the organization.
- Loyalty to the organization decreases.
- There can be two types of problems when making a monopoly contract. For example, service providers tend to reduce cost by reducing quality and become monopolistic because there is not much choice.
- They work together, increase the cost by carteling.
Process of Contracting Out
- The service is to be done by oneself, whether it is done jointly or from outside.
- Choose the sector to be given.
- Contract can be given on the based of nature and availability of service.
- Needs and demand of services are assessed by users.
- Agree and contract with the service provider.
- Supply quality and quantity of goods and services according to price.
- Government should look after Equity and technical parts.
- There should be virtuous and non-corrupt behavior.
Necessary Content to be included in Contract Document
- Service should be measured.
- Specify the value of service.
- Change in mechanism for high level needs.
- To see the arrangement of change and mechanism of service.
- State the mechanism in case of terminating the agreement.
- Fix the level of results to be served.
- Must have complete details about the service.
- There should be flexibility according to the change.
- Mention who and when according to contract.
- The amendment aspect of the service standard should also be mentioned.
- There should be a mechanism to monitor the quality of service.
Contract Management
The concept of contract management was started since 2001 and is still growing in importance. Contract management have been even made for office cleaning, gardener's work, machine maintenance and maintenance work. There is more emphasis on cost cutting than the means of serving the people.
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